[mike777]

"The Herald Tribune had a article along the line
"What would Warren Buffet do".

The answer was, get a stake in the companies you
are rescuing, that is what he did with Goldman
Sachs, ... and that is, what the bailout plan should
also include.

If taxpayer pay, they should get something back,
and I dint mean rubish papers, which may or may
not have something to do with mortages.

If this happens, I am pretty sure, that you could sell
the plan to the taxpayers, since it is clear, that the
community of taxpayer has to do something.

With kind regards
Marlowe "




Marlowe my friend:

Whether we should take a shareholder stake in these companies is worth discussing but let us back up a second on your entire post, please.

You seem a bit confused on who takes a higher claim on the assets of a company.

If a company goes bad the shareholders are last in line for the assets of a company, in other words they are going to get nothing.


"If taxpayer pay, they should get something back,
and I dint mean rubish papers, which may or may
not have something to do with mortages."

If you hold the shares in a company and I hold the mortgages I get first claim.
Simple example, If I spend 700 billion bucks on discounted paper I may get 3 trillion bucks of mortgage paper(face/principle value). Assume all this goes bad. Zero!
The 700 billion bucks I pay you goes back to the people in your bank who have savings and checking accounts.

I now own all the homes and land under these rubbish papers. You as a shareholder get nada.

If somehow these mortgages are paid off by the homeowners, I get 3 trillion bucks, maybe more if they also pay any interest.

[mike777]

"Pump the money in at the bottom, and then when the money has reached the top, take it away by taxing those at the top.

The focus should be on those who have lost everything, not those who are still millionairs but only less than before."
---------------
"Agree with Gerben."

----------------

Gerben:

First off I understand the concern of doing something for people who have lost everything. If you do not have a roof over your head and food in your stomach, we need to do something.

Still pumping money in at the bottom creates a moral hazard.

If I was a millionaire yesterday and today I got nothing I do not mind raising taxes on Gerben and Helene to feed and shelter my family but at some point you do not want me borrowing like crazy to buy a house I cannot afford and if I lose your family suffers.

[Lobowolf]

mike777, on Sep 30 2008, 12:36 PM, said:

"Pump the money in at the bottom, and then when the money has reached the top, take it away by taxing those at the top.

The focus should be on those who have lost everything, not those who are still millionairs but only less than before."
---------------
"Agree with Gerben."

----------------

Gerben:

First off I understand the concern of doing something for people who have lost everything. If you do not have a roof over your head and food in your stomach, we need to do something.

Still pumping money in at the bottom creates a moral hazard.

If I was a millionaire yesterday and today I got nothing I do not mind raising taxes Gerben or Helene to feed and shelter my family but at some point you do not want me borrowing like crazy to buy a house I cannot afford and if I lose your family suffers.

It is a 2-sided coin, indeed. Reminds me of a semi-recent bailout of people who lived in a heavy mudslide area of Southern California and didn't have insurance. Yeah, you have to feel bad for the people whose houses got all but destroyed, but jeez, at the same time...why not attach a rider to the bailout plan that allows for spitting in the faces of the idiots who'd been paying their insurance premiums for years, knowing they lived in a high-risk area?

[mike777]

As a side note is not the purpose of this bailout to give money to banks to make more loans, lots of loans?

I assume alot of these loans are going to be for mortgages for "affordable housing" and non mortgage type loans that may be risky?

I am not saying do not do the bailout but lets keep in mind loaning money is a risky business and that is where this 700 billion is going to.

Banks get 700 billion, taxpayers get IOU's. Banks turn around and loan out the 700 billion(creating credit and in fact because of the multiplier effect they create even more money and loan out this newly created money, repeat process) and take in more and more and more paper IOU's. In fact they create much more than 700 billion in new loans(IOU)

[Al_U_Card]

Well, they certainly give money to farmers for not growing crops so why not give money to banks for not lending????

The best lessons are those learned by hard experience.

[glen]

For those still following this (and I understand why one would not, given the coverage), here are some calmly discussing the situation:
CNBC - Bailout - Just The Beginning

[Codo]

I am really wondering about this bailout.

700 billion bucks- this is around 2.500 $ for each citizen. Do you really want to pay this besides the normal tax costs you bury?
This is nearly twice as much as the German State is spending in a year for everything. 700.000.000.000 is quite a big number.

Any ideas how you will pay this sum back?
Will you simply print the money and have an inflation?
Or will you borrow it from your children?
Or from China and the middle east?

It really surprised me that any given human being should be able to decide whether this is a good idea for the world and for the USA within several days.
So I really respect the descission to vote no.

I have not yet read how they wanted to solve the problems behind this financial disaster.
The bankers who sell house to people who cannot afford them.
The bankers who bought and sold for trillions without knowing which risk they have.
A system where you earn trillions if you have success but pays nothing when you fail. This is the best way for shortsighted strategies, because you can win a lot and if you lose.. well who cares. It is not your money.

Maybe we need to care for the "poor" people who take credits and cannot pay them back. But first of all we need to solve the problems, I do not see any serious approach in that direction. (But maybe it is just not yet in the news).

[Gerben42]

The taxpayer wants to know how this package, that will cost him $2500 per capita, is going to help him. Before that happens, the taxpayer will be against it and prefer to vote for someone who also against it. So the delegates in the House will vote against it because they want to be reelected. Simple, really.

And people won't buy the argument that "Warren Buffett said it is necessary". I might, but the average voter won't.

I have also no idea what a recession looks like, especially in connection with my area of work. Our order books are well filled, and hire as much qualified personnel as can be realistically integrated. And projections are that this is not going to change, on the contrary.

[mike777]

Gerben42, on Oct 1 2008, 02:51 AM, said:

The taxpayer wants to know how this package, that will cost him $2500 per capita, is going to help him. Before that happens, the taxpayer will be against it and prefer to vote for someone who also against it. So the delegates in the House will vote against it because they want to be reelected. Simple, really.

And people won't buy the argument that "Warren Buffett said it is necessary". I might, but the average voter won't.

I have also no idea what a recession looks like, especially in connection with my area of work. Our order books are well filled, and hire as much qualified personnel as can be realistically integrated. And projections are that this is not going to change, on the contrary.

A recession is when your neighbor is out of work
A depression is when you are out of work.

I understand to lose your job in Europe your employer needs to hire a lawyer and take you to court.

In Usa, your boss says bye..........you are wonderful worker!

[helene_t]

ROFL. Spot on, Mike

It seems to me as if congress is now suddenly starting to debate what to do about the credit crisis, as if it came as thunder from a clear sky. Not that I claim to have predicted the exact time and magnitude of the credit crisis, but it's not like it's a big surprise. The media have been speculating about this at least since the dollar started loosing to the Euro.

Or is it that this bailout has been prepared for years and everyone was expected to vote for it, except if the issue came up a few weeks before an election?

[Codo]

a nice summary had been in our local newspaper.

What can you do with 700 Billion dollars?

War against terror for the next seven years.
4 Missions to the moon.
Employ 22 Million americans with the average income for one year.
Pay a complete health insurance for all Americans for the next six years.
Help Africa for the next ten years to cure hunger and disease.
Cure ALL problems man made to nature.
Build 3.5 Million new houses in Germany (for 200.000 $ each).
Pay all 16 secret service of the US for the next 15 years.
Buy Denmark twice. The complete BIP is 350 Billion.
Save the money for the next onehundred Hurricanes like Katrina.

Do you still belive that it is good use of the money to help home owners who are not able to pay the mortage and bankers who failed to make profite and burned money instead?

I know about the concept, "Too big to fall". So I agree that without the bailout, the financial sector is in more then serious trouble. This will influence the world wide economy and unluckily not just the finacial part. We will have many companies closing. We will have more unemployed people. This will cost all of us more then these 700 Billion Dollars. Maybe all of this is horrible, and surely it is very hard to handle.

But maybe it is the only way to stop the silly concepts the finacial sectors have in the moment. Maybe they will stop to act like lunatics. And maybe they after the crah will start to buy and sell things they understand and which have a value for the buyer and the seller.

[glen]

I liked this quote from: CNN/Fortune: What Investors Should Do Now

Bernstein said:

It's weird - the canary in the mineshaft has fallen over, and now everyone thinks there's a problem with canaries

As noted in the article and elsewhere, investors should look for companies with:
- low debt (debt-to-capital ratios of 10% or less)
- modest valuations (price/earnings ratios of 14 or less)
- solid earnings forecasts (earnings-per-share growth of 10% or better for both 2008 and 2009)
- dividend-paying
In other words, the show me the money companies

[y66]

Quote of the day (from Thomas Friedman's column in today's NY Times):

Caller: What are the best positions to be in to ride out the market storm?

CNBC commentator (without missing a beat): Cash and fetal.

[Al_U_Card]

Forget about canaries, but the species is close....as far as the economy is concerned.

The chicken still running around, with its head cut off, is just a precursor to the plucking and the roasting......it will be a meal, it is just a matter of time.

"W" has sold you, lock, stock and barrel to the Chinese and his "buddies" are making out like bandits. They just want their 700 billion golden parachute to ease their exit.....interesting that this culminated at the end of 8 years of a bush-league presidency...

[y66]

Not duck?

[Al_U_Card]

Peking duck?

Remember that "sucking" sound that Ross Perot warned of? Well, its corresponding wallet-emptying sound is fast approaching as the bail-out will concentrate on taking your future earnings and giving them to every investor (domestic AND foreign ) that ever purchased some of that toxic debt. (That many have already written down against taxes to be paid....)

They win and you will lose, in perpetuity.

Stop them now, while you still have the chance. Market stability comes and goes but you only have one future...

[Al_U_Card]

I wonder why almost the same amount of "cash" didn't help then....


"Sept. 29 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone."

[Al_U_Card]

And this from Karl Denninger's blog

""Hundreds of billions of dollars are going to bail out FOREIGN INVESTORS. They know it, they demanded it, and the bill has been carefully written to make sure that can happen." - Brad Sherman , D-California"

That's right folks. You are going to have $700 billion - about 25% of the total federal budget - put on your personal credit card (via taxes forever) in order to bail out foreign investors.

Oh, and the best part of it is that the underlying assets involved do not even have to be in the United States!

Here is the definition of a "troubled asset", right from the bill:

"(9) TROUBLED ASSETS.—The term ‘‘troubled assets’’ means— (A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability;

and ( any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress."

Notice that conspicuously missing from the definition is the requirement that the asset's underlying thing (that is, the property that was mortgaged, etc) lies within the United States. Also note that Treasury must tell Congress if they add "new types" of debt, but that Congress has no right of review or censure.

That is, it is perfectly legitimate under the bill for a foreign bank to sell or swap any "crap sandwich" it may hold (irrespective of how or where it originated, so long as a mortgage is the basis for it somewhere) with a bank domiciled in the United States, and said bank may then "PUT" it into the TARP.

Note also that Representative Sherman said on Kudlow last night that when this was raised with Secretary Paulson he was told that if Congress tried to restrict the ability of the Secretary to purchase assets "laundered" in this fashion from foreigners, that the bill would be vetoed.

[y66]

From Paul Krugman's blog entry today entitled "Bailout Narratives".

Quote

There seem to be two prevailing narratives about the bailout plan(s). Both have elements of truth, but are fundamentally wrong.

One narrative is that of the Wise Men and the Destructive Yahoos. According to this narrative, men who Understand What Needs to be Done put together a plan to save the world, but they did a bad job of communicating, and a mob of ignorant people stands in their way.

The other narrative is that of the Evil Plotters and the Righteous Uprising. According to this narrative, the same people who sold us the Iraq war have tried to bully Congress into adopting a plan that is, in essence, a cynical ripoff — a scheme to transfer vast wealth to the rich and cripple the next administration.

As I said, there’s some truth to both narratives. Many of those opposing the bailout are indeed destructive yahoos — read some of the speeches during the House debate. And yes, there were Iraq echoes in the way Paulson tried to ram his original plan through.

But both narratives are mostly wrong.

For the rest of the story, click here.

[mike777]

btw Ireland just guaranteed all, I mean all the debt of its top six financial inst.